Annual rates for both all-items and core inflation fell from January levels and came in under expectations.
By David Enna, Tipswatch.com
Finally, some good news on inflation. The February inflation report just released by the Bureau of Labor Statistics shows inflation moderating, with annual rates for both all-item and core inflation declining.
All-items inflation, measured on a seasonally adjusted basis, came in at 0.2% for the month and 2.8% for the year. Core inflation, which removes food and energy, was 0.2% for the month and 3.1% for the year. This was below expectations, and also below January’s annual numbers of 3.0% for all-items and 3.3% for core.
The BLS noted that shelter costs rose 0.3% in February, accounting for nearly half the February all-items increase. Shelter costs were up 4.2% for the year, but the BLS noted that was the smallest 12-month increase since December 2021. Also from the report:
- Food at home prices were unchanged for the month and up 1.9% for the year.
- The price of eggs was up 10.4% for the month and a frightening 58.8% for the year.
- Gasoline prices fell 0.9% and are now down 3.2% annually.
- Electricity costs, however, were up 1.0% for the month and 2.5% for the year.
- Costs of used cars and trucks rose 0.9% for the month but are up only 0.8% over 12 months.
- New vehicle prices fell 0.1% for the month and are down 0.3% for the year.
- Airline fares fell a sharp 4.0% for the month and are down 0.7% for the year.
- Costs of motor vehicle insurance rose 0.3% for the month and are up 11.1% for the year.
Here is the 12-month trend in annual all-items and core inflation, showing how both all-items and core inflation broke lower in February, with core reaching its lowest annual level since April 2021:
What this means for TIPS and I Bonds
Investors in Treasury Inflation-Protected Securities and U.S. Series I Savings Bonds are also interested in non-seasonally adjusted inflation, which is used to adjust principal balances on TIPS and set future interest rates for I Bonds. For February, the BLS set the inflation index at 319.082, an increase of 0.44% over the January number.
For TIPS. The February inflation index means that principal balances for all TIPS will increase by 0.44% in April, after rising 0.65% in January. Keep in mind it is normal for early-year non-adjusted inflation to run higher than the adjusted CPI. That will reverse later in the year. Here are the April Inflation Indexes for all TIPS.
For I Bonds. February marks the fifth of a six-month string that will determine the I Bond’s new variable rate, which will be reset on May 1 and eventually roll into effect for all I Bonds. As of February, with one month remaining, inflation has increased 1.20%, which would translate to a variable rate of 2.4%. The March number seems likely to push that up to about 3.0%, much higher than the current 1.90%.
This trend is going to make I Bonds an interesting investment in 2025, potentially offering a composite rate of about 4.1% or 4.2% for six months, at a time when short-term rates could be declining. I’ll have more on that after the March inflation report is issued on April 10. Here are the data so far:
What this means for future interest rates
The February inflation report provides good news for the Federal Reserve, with annual inflation finally moderating after increasing from 2.4% in September 2024 to 3.0% in January. As it stands, 2.8% for all-items and 3.1% for core remains too high. But the upward creep has ended.
There are still a lot of unknowns, with the effects of tariffs, federal layoffs, deportations and a potentially weakening economy lingering out there in our future. On balance, I’d say the possibility of short-term rate cuts in 2025 has been increasing. But the key question is: Can inflation continue moderating?
From this morning’s Bloomberg report:
While Wednesday’s report offers some relief, several measures still indicate that inflation is rearing back up again. And with President Donald Trump rolling out a series of tariffs, prices are expected to rise on a variety of goods from food to clothing, testing the resilience of consumers and the broader economy. …
“The combination of easing inflationary pressures and rising downside risks to growth suggest that the Fed is moving closer to continuing its easing cycle,” Kay Haigh, global co-head of fixed income and liquidity solutions in Goldman Sachs Asset Management, said in a note.
And the Wall Street Journal:
Wednesday’s report largely predates President Trump’s recent tariff actions, which means the full effect of the new tariffs aren’t captured.
My reaction is: This February inflation report takes a positive (but small) step toward lower inflation. A lot of uncertainty remains. The Fed will be on hold for the near term.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
Hi David, I have been following you and your analysis of the Treasury market for some time. I invest in I bonds and TIPS and for the first time in 2024, short duration Treasury bills.
I noticed that the interest amounts listed on my 1099INT for Treasury bill activity were greater than the amounts actually deposited to my account with the long duration bills’ difference greater than shorter bills. For example, deposits in October 2024 had differences as follows; Form 1099 Deposited to my Checking account 4-Week Bill $20.46 $19,318 Week Bill $40.25 $36.09 I am not having taxes withheld and there is no explanation on the Form 1099.
I have e-mailed Treasury Direct but with the current circumstances at the Federal Government not sure how long a response might take. Reaching out to you as I have a feeling there is something basic I do not understand about this investment (deposits related to TIPs agree with that reported on my 1099). Thank you, Suzanne Hagen
Because of the way this comment rendered it is hard to tell exactly what happened. Keep in mind that if you are rolling over T-bills, the discounted amount is deposited to your bank account on the purchase date, but is probably posted on the 1099 when the T-bill matures. So it could be you are seeing a 4-week lag. This happens in my records.
Hi David, Your response time sure beats Treasury Direct. Let me explain in words as the number detail did not display properly. To start, I noticed that the detail by date of interest received on the Form 1099 did not agree with the amount deposited on the same dateto my checking account. For example, the Form 1099 shows $40.25 of interest dated 10/15/2024 on an 8-week bill but the deposit to my checking account on the same 10-15-2024 was $36.09. A larger difference occurs on the longer-dated 13-week bill with the Form 1099 showing $63.89 on 11/21/2024 and the deposit to checking on that date $55.86. Ok – looking at the idea of a lag. For the 8-week bill above, the $36.09 deposited to checking on 10-15-2024 agrees with 12-10-2024 $36.09 amount on the 1099.So the lag is actually the 8-week length of the security. For four week bills, this also works with the deposit to checking aligning with the Form 1099 amount a month later. I guess that the 13-week bill example above will also follow this pattern and and the 2025 Form 1099 willshow the $55,86 as March interest. I am still confused though by the initial interest amounts on the 1099 discussed above, the $40.25 for the 8 week Treasury bill and the $63.89 for the 13-week Treasury bill. I initiated these Treasury bill purchases in mid-August. These were not positions that were reinvested. I do not see where this was ever deposited to my account. Was this through an adjustment to the purchase price? I really so appreciate your help with this and any other readers/commenters who may have encountered thesedifferences. Thank you,Suzanne
If you make a single T-bill purchase, and do not reinvest, no “interest” will be deposited to your bank account. You buy a 4-week T-bill at a discount, say $985 for $1,000 T-bill, and then 4 weeks later at maturity you get $1,000. The 1099 will show $15 interest (earned at maturity) but your bank account won’t show a $15 deposit. If you rollover that T-bill, you have $1,000 to reinvest. The next T-bill costs $984. Your bank account gets sent the extra $16. But that $16 won’t appear on the 1099 until 4 weeks later. This only happens with T-bills, which are purchased at a discount and pay full par value at maturity.
To bad we can’t buy I BONDS in a Roth account
I’m inclined to buy more ibonds by the end of March and get the current 1.2+ fixed and inflation part for 6months AND then get the 1.2+ new May inflation part for another 6months. Rationale being…I know what I will have in one year (actually just over 11 months) if I want to redeem…I know to a much lesser degree if buying post May 1st even if no meaningful downturn of fixed component (anyone got a current estimate for same?) and then the government/economy (to some) will be closer “to reality” with the midterms just right around that corner. And what says you?
I wrote about the new fixed rate here: https://tipswatch.com/2025/03/09/i-bonds-fixed-rate-could-fall-at-may-1-reset-or-not/ I think the rate could fall to 1.1%, but it could hold at 1.2%. Buying at the end of March? I may do the same.
This is your second “good news” inflation article this year, which seems to be interpreted completely differently by the Wall Street Journal: “Bad News From This Week’s Inflation Data: The Fed’s Favorite Gauge Likely Ticked Up”
Actually, I called the January inflation report (issued in February) “a bit of disaster.” It was much higher than expected. The December report (issued in January) was also higher than expected. So February was the first report of the year coming in lower than expectations. The WSJ report you mentioned was a preview to the PCE inflation index for February, which hasn’t been released yet (it will come March 28).
David, thanks for your continued updates during these uncertain times. Looks like you had a great trip to South America. I have not made it to Patagonia yet, but found the Atacama Desert in northern Chile very enchanting.
Back to I Bonds: what is the typical spread between seasonally and non-seasonally adjusted CPI during the first quarter? Cleveland Fed is currently forecasting flat to near zero March inflation. I assume the non-seasonally adjusted CPI will still be around 0.2% or higher? Unless unadjusted March CPI ends up below 0.15%, early 2024 I Bonds should have a composite rate of at least 4%.
I look at the Cleveland Fed’s nowcasting report but I find it’s not super reliable. I am assuming gas prices or food prices are declining this month? Could be. It still sees core coming in at 0.26% for March, so the difference must be in food and/or energy. In 2024, March non-adjusted inflation was 0.65% while adjusted inflation was 0.40%. In 2023, March non-adjusted was 0.33% while adjusted was 0.1%.
My opinion is that there are too many variables to juggle at once to make the “proper” prediction. Tariffs will make certain items go up in price, but like cigarettes (after higher taxes), there will be less buyers or just buying it here and keeping the funds circulating within the US. With more drilling starting up, energy will go down. Also, less regulations which cuts down costs along with tax incentives (ie getting the investments here). More companies are already investing more money in the US which will bring back jobs. With illegal immigrants leaving, this will limit the number of workers available and make companies pay higher wages. More cutting in government, which leads to less printing of money.
Those are just some of the factors I see. The biggest unknown factor is timing. How long will each one take. Lastly, right now a lot of tariffs are just bargaining chips and haven’t been implemented yet (keywords, a lot of).
My two cents. Which if I remember correctly, will need to be upgraded to five cents since pennies are being done away with (haha).
Inflation is where “you” buy! Similarly the unemployment is rate is 0% or 100% depending upon your situation!
It’s true that the generic CPI, even among its multiple versions (CPI-W, CPI-U, etc.), probably never matches the “personal” inflation profile experienced by any individual’s own expenditure habits.
But, so far, I haven’t been able to persuade the government to formulate an accurate TipswatchChatGuy Index and then apply it to my personal I Bonds and TIPS holdings. 🙂
I’m no fan of tariffs, but inflation is driven by monetary policy and the money supply. While tariffs may affect prices in certain markets, they don’t increase the money supply and thus aren’t inflationary or deflationary.
Certainly they may drive price increases in certain sectors, but because the overall money supply stays about the same, there necessarily are reductions in spending (and thus prices) elsewhere.
Inflation has a lot of versions and monetary policy is the key one over the long term. But tariffs do have the potential to increase prices, and thus inflation, at least as a one-time event. Treasury Secretary Bessant has said, “Look, can tariffs be a one-time price adjustment? Yes.” CPI will be higher. That’s inflation. And it could be fairly broad one-time inflation, across many sectors. Then the question is: Will wages need to increase?
This report may also be good news because it may reduce the administration’s perceived need to fiddle the CPI/PPI/ PCE numbers, at least for now.
You’re probably right.
But, of course, the “need” which ought to be “perceived” by any administration, regardless of political disposition, is the need for honest, accurate, let-the-chips-fall-where-they-may economic numbers, free of any “fiddling” at all.
I believe this is also called “truth” or “reality.” 🙂
I’m thinking we may not have “any administration” at the moment. Or that we will during the remainder of my natural life. 😥
The time to be worried about fiddling with numbers was the last administration, which had very high numbers which contributed to its broad unpopularity and also featured a number of high revisions on all kinds of economic numbers. No more reason to be concerned with this President than last time he was in office – unless you think the books got cooked back then
Chucko, I appreciate hearing this point of view, which is at odds with a lot of commenters. This second term seems to be a lot different than the first because of the bold and sometimes defiant actions the administration is taking. My thinking is: We should be alert and not jump to conclusions.
“This trend is going to make I Bonds an interesting investment in 2025, potentially offering a composite rate of about 4.1% or 4.2% for six months, at a time when short-term rates could be declining. “
The most recent 6-month T-bill auction yielded 4.219%. A tax-deferred I bond with the same basic rate at least levels the playing field, but…
I believe this month’s inflation report is an outlier because it doesn’t reflect extreme tariff policy. The next one will take this unnecessary trade war into account and prices won’t be as forgiving. Despite the rhetoric, countries don’t pay tariffs — importers, distributors, retailers, and ultimately consumers do as the cost is passed on.
So I wouldn’t count on a declining short-term inflation rate which means further Fed easing could easily be delayed. Higher inflation and delayed easing could indeed be a boost for I Bonds especially if the fixed rate holds up for new buyers.